Merseyside Passenger Transport Executive


Merseyside Passenger Transport Executive



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Merseyside Passenger Transport Executive


Notes To The Financial Statements (Cont’d)

20. Contingent Assets and Liabilities


Under the franchise agreement with SNR, in respect of Merseyrail Electrics, there is a contingent provision for MEL surpluses above a certain threshold being shared between the franchisee (SNR) and franchisor (MPTE). The franchisor’s share for 2008/09 was a nominal £0.797m, and the benefits shared are required to be in the form of passenger improvements to the service, at the franchisee’s expense. The total balance remaining as at 31 March 2009 is £0.474m. Agreed committed expenditure includes strengthening services on the Chester Line, promotion/opportunities associated with the year of Capital of Culture, the Year of the Environment, and further improvements at LSP. Discussions were ongoing with the franchisee to determine the best use and maximum benefits to the travelling public for investing the remaining £0.474m.
There also exists an arrangement for certain uninsured employer liabilities and currently there are two claims relating to asbestos exposure. To date, there are no quantifiable values for the claims.

21. Post Balance Sheet Events


The Executive has entered into a Subscription Agreement with Livesmart Limited to subscribe for preference shares in that company. A subscription of £103,205 was entered into on 27 April 2009.
22. Capital Grants and Contributions





2007/08

2008/09





Executive

£000


Consolidated

£000


Executive

£000


Consolidated

£000

















Opening Balance at 1 April

92,367

92,367

99,572

99,572
















Grants/contributions deferred during

34,722

34,722

30,943

30,943

year

_____

_____

_____

_____



















127,089

127,089

130,515

130,515
















Impairment of Fixed Assets

-

-

(25,225)

(25,225)
















Disposal of Assets

-

-

(313)

(313)
















Grant to Fund Rail Projects & other deferred Expenditure

(23,479)

(23,479)


(15,543)

(15,543)
















Released to Revenue Account

(4,038)

(4,038)

(4,302)

(4,302)




_____

_____

_____

_____
















Carried Forward at 31 March

99,572

99,572

85,132

85,132




_____

_____

_____

_____













The grant to Network Rail plc was to finance capital expenditure on improvements to the Merseyrail Infrastructure.



Merseyside Passenger Transport Executive
Notes To The Financial Statements (Cont’d)

23. Applied Grants and Contributions from Public Funds (serving both the Executive's and Consolidated Accounts)







2007/08

2008/09




£000

£000










Passenger Transport Authority:







Special Rail Grant

92,014

78,607

Revenue Grant

87,400

87,500

Capital Grants

32,771


29,144

Concessionary Travel Grant

-

6,519










European Union







Revenue Grant

945

58

Capital Grant

-

-










Urban/Rural Bus Grants

140

143




_____

_____










Total

213,270

201,971




_____

_____








24. Grants/Contributions Deferred (serving both the Executive's and Consolidated Accounts)




Grants

Brought Forward 01/04/08

Application of Unapplied Resources Brought Forward

Additions 2008/09

Applied/ Released to Revenue/ Reserve 2008/09

Carried Forward 31/03/09




£000

£000

£000

£000

£000

Grants/Contributions/

Reserves Applied

































Passenger Transport Authority


99,572

-

15,401

(29,841)

85,132

European Union

-

58

-

(58)

-

Contributions/Receipts

-

1,800

-

(1,800)

-

Capital Reserve

-

-

-

-

-

Urban/Rural Bus Grants

-

-

175

(175)

-




_____

_____

_____

_____

_____




















99,572

1,858

15,576

(31,874)

85,132




_____

_____

_____

_____

_____

Grants/Contributions/
Reserves Unapplied



































Passenger Transport Authority

-













European Union

112

(58)

(2)

-

52

Contributions/Receipts


2,300

(1,800)

741

-

1,241

Capital Reserve

2,826

-

1,000

-

3,826




_____

_____

_____

_____

_____






















5,238

(1,858)

1,739

-

5,119




______

_____

_____

_____

_____

















Total Capital Resources

104,810

-

17,315

(31,874)

90,251



















SSAP4 (Accounting for Government Grants) requires that grants should be credited to a Grants Deferred account and written off to the revenue account, over the useful life of the asset, to match the depreciation of the asset to which it relates.



Merseyside Passenger Transport Executive
Notes To The Financial Statements (Cont’d)

25. Reserves




Opening Balance 1/4/07

Movement 2007/08

Restatement 2007/08

Closing Balance 31/3/08

Executive

Opening Balance 1/4/08

Movement 2008/09


Closing Balance 31/3/09

£000

£000

£000

£000




£000

£000

£000

87

296

-

383

Operating Surplus

383

617

1,000

4,892

1,000

-

5892

Earmarked Reserves

5,892

3,644

9,536

(33,565)

(14,548)

1,999

(46,114)


Pensions Reserve

(46,114)

(824)

(46,938)

-

-

-

-

Revaluation Reserve

-

19,966

19,966

1,030

1,796

-

2826

Capital Reserve

2,826

1,000

3,826

(27,556)

(11,456)

1,999

(37,013)




(37,013)

24,403

(12,610)

Movements in 2008/09 are analysed as follows:-





£000

Opening balance 01/04/08

(37,013)

Additions during the year

25,227

Drawings during the year

(824)

Reversed (unused) balances

-




(12,610)







To be utilised between 1 and 5 years

34,328

To be utilised after 5 years

(46,938)




(12,610)



Opening Balance 1/4/07

Movement 2007/08

Restatement 2007/08

Closing Balance 31/3/08


Group

Opening Balance 1/4/08

Movement 2008/09

Closing Balance 31/3/09

£000

£000

£000

£000




£000

£000

£000

87

296

-

383

Operating Surplus

383

212

595

4,892

1,000

-

5,892

Earmarked Reserves

5,892

4,366

10,258

(33,565)


(14,548)

1,999

(46,114)

Pensions Reserve

(46,114)

(824)

(46,938)

-

-

-

-

Revaluation Reserve

-

19,966

19,966

1,030

1,796

-

2,826

Capital Reserve

2,826

1,000

3,826

(27,556)

(11,456)

1,999

(37,013)




(37,013)

24,720

(12,293)

Movements in 2008/09 are analysed as follows:-







£000

Opening balance 01/04/08

(37,013)

Additions during the year

25,571

Drawings during the year

(851)

Reversed (unused) balances

-




(12,293)







To be utilised between 1 and 5 years

34,645

To be utilised after 5 years

(46,938)




(12,293)



Merseyside Passenger Transport Executive
Notes To The Financial Statements (Cont’d)

For subsidiary undertakings, the aggregated amounts for capital and reserves, as at 31 March 2009, were as follows:-






£000

Spaceport Ltd

(143)

U-534 Ltd

(20)

Gemtex Associates Ltd

645

The Beatles Story

566

Real Time Information Group

(1)

The Global Smart Media Group

203




1,250







The Executive

(12,610)

Adjustments on Consolidation

(933)




(12,293)

26. Finance Leases (serving both the Executive's and Consolidated Accounts)






Due Within One Year




£000

At 1 April 2008

-

Repaid

-







At 31 March 2009

-







27. Pensions Liabilities


In accordance with the requirements of the Accounting Standard: Retirement Benefits (FRS 17) the Executive has to disclose its share of assets and liabilities related to pension schemes for its employees. As explained in Accounting Policy No 17 the Executive participates in the Local Government Pension Scheme which is administered by the Merseyside Pension Fund. The scheme is of a defined type whereby benefits are based on employee pensionable remuneration and length of service. The Fund had its last full actuarial valuation as at 31 March 2008 (effective from 1 April 2008). In addition the Executive has made arrangements for the payment of added years to certain retired employees outside the provisions of the scheme.

Merseyside Passenger Transport Executive
Notes To The Financial Statements (Cont’d)
The Executive's assets and liabilities are:




Original 2007/08

Re-Stated 2007/08

2008/09





£000

£000

£000













Share of liabilities in Merseyside Pensions Fund

(190,273)

(190,273)

(161,157)

Estimated liabilities for discretionary added years

-

-

-




_______

_______

_______













Total liabilities

(190,273)

(190,273)

(161,157)

Share of assets in Merseyside Pensions Fund


142,160

144,159

114,219




_______

______

______













Net pensions surplus/(deficit)

(48,113)

(46,114)

(46,938)




_______

_______

_______













Present Value of Funded Pensions Liabilities




(180,420)

(152,976)

Present Value of Unfunded Pensions Liabilities




(9,853)

(8,181)







______

______



















(190,273)

(161,157)













Fair Value of Plan Assets




144,159

114,219







______

______













Net pensions surplus/(deficit)




(46,114)

(46,938)







______

______










NB: (a) Deferred taxation has been ignored.

(b) Revenue account items and movement in reserves items are required for 2008/09.

(c) Compensatory added years benefits which are recharged to the Executive have been included in the liabilities for the purpose of FRS 17 calculations.

(d) There have not been any specific investigations in relation to whether the average age of the membership has increased, however, there is a belief that there have not been any substantial changes since the actuarial valuation.

(e) The Accounts and Audit Regulations 2006 (SI 2006 No. 564) allows FRS17 costs to be neutralised in the same way as FRS17 costs are neutralised for Local Authorities.

(f) Original 2007/08 figures for pension assets, prepared under FRS17 guidelines, were based on 9 months’ actual performance of the Pension Fund, plus an estimate for the final quarter, representing a combined performance of -3.0%. These accounting statements include the Pension Fund’s restated March 2008 figure to reflect the actual Fund balance as at 31 March 2008 to compare to the 2008/09 figures that were also prepared on the same basis using actuals as at 31 March 2009.

(g) “Medium Cohort” mortality projections were adopted, which are often used for funding and expensing for UK pension schemes generally. Adjustments were made to the standard tables to allow for the experience of local authority funds generally, as follows:-


- Non-retired members (retiring in the future in normal health): PA92MC YOB Tables + 2 years.

- Current pensioners (retired in normal health): PA92MC YOB Tables + 2 years.


Merseyside Passenger Transport Executive

Notes To The Financial Statements (Cont’d)

(h) Analysis of the Executive’s share of the Pension Fund's assets are as follows:-






Original
2007/08

Re-stated
2007/08

2008/09

























£000

%

£000

%

£000

%

Equities

81,742

(57.5)

82,891

(57.5)

61,221

(53.6)

Government Bonds

22,888

(16.1)


23,210

(16.1)

20,217

(17.7)

Other Bonds

8,387

(5.9)

8,505

(5.9)

5,483

(4.8)

Property

12,368

(8.7)

12,542

(8.7)

10,622

(9.3)

Cash/liquidity

6,397

(4.5)

6,487

(4.5)

4,797

(4.2)

Other

10,378

(7.3)


10,524

(7.3)

11,879

(10.4)

Total

142,160

(100.0)

144,159

(100.0)

114,219

(100)

(i) Analysis of the movement in deficit during the year:-








2007/08

Re-stated
2007/08

2008/09




£000

£000

£000

Deficit at 1 April

(33,565)

(33,869)

(46,114)


Current Service Cost

(1,979)

(1,979)

(2,166)

Employer/Employee Contributions

4,500

4,500

4,613

Past Service/Curtailment Cost

(700)

(700)

-

Net Interest/Return on Assets*

(120)

(140)

(2,083)

Actuarial Gain or (loss)**

(16,249)

(13,926)

(1,188)

Deficit at 31 March

(48,113)

(46,114)

(46,938)











* Expected Return on Assets

9,692

9,672

9,311

Interest on Pension Liabilities

(9,812)

(9,812)

(11,394)

Net Gain/(Loss)

(120)

(140)

(2,083)













** Asset Gain/(Loss)

(14,235)

(12,151)

(34,709)

Liability Gain/(Loss)

6,689

(1,775)

33,521

Change in Assumptions

(8,703)

-

-


Other

-

-

-

Net Loss

(16,249)

(13,926)

(1,188)

(j) The FRS17 charge to the Income and Expenditure Statement for 2008/09 is £4.249m (2007/08 £2.819m).


(k) The FRS17 charge to the Statement of Total Recognised Gains and Losses for 2008/09 is £0.824m (2007/08 £14.548m).
(l) The estimated contribution to be paid to Merseyside Pension Fund for 2009/10 is £4.659m.
Liabilities have been valued on an actuarial basis using the projected unit method which assesses the future liabilities of the fund discounted to their present value. The pension liabilities have been valued by William M Mercer Ltd an independent firm of actuaries. The main assumptions used in the calculations are:




2007/08

2008/09










- rate of inflation

3.6% pa

3.3% pa

- rate of increase in salaries


4.85% pa

4.55% pa

- rate of increase in pensions

3.6% pa

3.3% pa

- rate for discounting scheme liabilities

6.1% pa

7.1% pa









Assets in the Merseyside Pension Fund are valued at fair value, principally market value for investments, and included the following assumptions:-



Merseyside Passenger Transport Executive
Notes To The Financial Statements (Cont’d)





Expected Rate of Return on Assets

Split of Assets between Investment Categories

2007/08







Equity investments

7.5%

57.5%


Government Bonds

4.6%

16.1%

Other Bonds

6.1%

5.9%

Property

6.5%

8.7%

Cash/Liquidity

5.25%

4.5%

Other

7.5%

7.3%







100.0%










2008/09







Equity investments

7.5%

53.6%

Government Bonds

4.0%

17.7%


Other Bonds

6.0%

4.8%

Property

6.5%

9.3%

Cash/Liquidity

0.5%

4.2%

Other

7.5%

10.4%







100.0%

The Executive's long term pensions deficit represents an under funding of approximately 29% (24% for 2007/08) against the organisation's share of liabilities in Merseyside Pension fund (market value of the total fund at 28/02/09 was £3,423m). Part of this deficit represents the residual liability that originated with the early retirements and ill health retirements of some 2,000 bus operations employees, in 1986, just prior to bus deregulation.


At that time, agreement was reached with the Merseyside Pensions Fund to pay-off the shortfall in the Fund by annual instalments. Currently these instalments are in the region of £1.3m pa, to be paid over the next decade.

28. Financial Instruments


The Executive’s activities expose it to a variety of financial risks:-

  • credit risk – the possibility that other parties might fail to pay amounts due to the Executive;





  • liquidity risk – the possibility that the Executive might not have funds available to meet its commitments to make payments; and




  • market risk – the possibility that financial loss might arise for the Executive as a result of changes in such measures as interest rates and stock market movements.

The Executive’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the resources available to fund services. Risk management is carried out by the Finance Directorate, under policies approved by the Executive in its treasury management strategy.


(a) Credit risk
Credit risk arises from deposits with banks and financial institutions, as well as credit exposures to the Executive’s customers. Deposits are not made with banks and financial institutions unless they are rated independently with a minimum score of P1 and A3 (Moody’s) and/or F1 and A (Fitch’s), with weightings of the total amounted deposited in the highest rated categories. The Executive has a policy of spreading of its surplus balances over several source institutions.
(b) Liquidity risk
As the Executive has ready access to borrowings from the Public Works Loans Board, there is no significant risk that it will be unable to raise finance to meet its commitments under financial instruments. There is a future risk that the Executive will be bound to replenish a proportion of its borrowings at a time of unfavourable interest rates, however this risk is several decades in the future and will be significantly covered by MRP balances.




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